Business· Finance

High bad loan ratios and short life spans of small companies remain as key concerns for banks

minutes 2019/06/26 05:40:37
bad loan ratio; small and micro enterprises; short business life span

Jun 26, 2019 (China Knowledge) - While Chinese banks have increased lending to small and micro enterprises after repeated calls by the government, concerns still remain over the high bad loan ratios and short life spans of these businesses.

According to the Chinese central bank and banking regulator, the average bad loan ratio for credit to small firms was 3.16%, while that for businesses with credit lines of under RMB 5 million was 5.5%. In comparison, the average bad loan ratio for the entire banking sector was 2%.

While, the central bank and banking regulator have called these risks manageable, it is undeniable that the bad loan ratio for these small businesses is much higher than that for large enterprises. As of the end of May, bad loan ratio for businesses with credit lines of less than RMB 10 million was 5.9%, what that for large and medium sized companies was 1.4% and 2.6% respectively.

Smaller scale and lower competitiveness have resulted in SMEs being less resistant to external economic fluctuations while small exporters have been hit hard by the current trade war between the China and the US.

Furthermore, the average life span of small businesses in China is only three years, much shorter than those in countries such as US and Japan which exposes Chinese banks to greater risks when making loans to these clients.

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